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Trump Says Blame ‘Loco’ Fed, Not China Trade War, for Sell-Off

(Bloomberg) -- President Donald Trump slammed the Federal Reserve as “going loco” for its interest-rate increases this year in comments hours after the worst U.S. stock market sell-off since February.

Trump said in a telephone interview on Fox News late Wednesday night the market plunge wasn’t because of his trade conflict with China: “That wasn’t it. The problem I have is with the Fed,” he said. “The Fed is going wild. They’re raising interest rates and it’s ridiculous.”

“That’s not the problem,” he said of the trade standoff. “The problem in my opinion is the Fed,” he added. “The Fed is going loco.”

His latest criticism of the central bank began earlier Wednesday as he arrived in Pennsylvania for a campaign rally. “They’re so tight. I think the Fed has gone crazy,” the president said.

Trump appeared to blame the Fed for a stock rout that market analysts mostly attributed to fresh concern about his trade war with China. The president has been publicly criticizing the institution -- led by Chairman Jerome Powell, whom he appointed -- since July for interest-rate increases and declared he was “not happy” in September after the third rate hike of the year.

Among those who came to Powell’s defense was International Monetary Fund chief Christine Lagarde, whose agency just downgraded forecasts for global growth due to trade tensions.

No ‘Craziness’

“I would not associate Jay Powell with craziness,” Lagarde told CNBC at the annual IMF-World Bank meetings Thursday in Bali, Indonesia. “No, no, he comes across, and members of his board, as extremely serious, solid and certainly keen to base their decisions on actual information, and decide to communicate that properly.”

The market rout continued across Asia, with benchmarks from Tokyo to Hong Kong seeing declines in excess of 3 percent. Trump, who has frequently invoked rising stock prices as an affirmation of his economic policies, played down the significance of the market drop even as he pointed the finger at the Fed.

“I think it’s good,” Trump said of the U.S. stock decline. “Actually, it’s a correction that we’ve been waiting for for a long time. But I really disagree with what the Fed is doing."

Treasury Secretary Steven Mnuchin echoed those sentiments in an interview in Bali on Thursday, saying markets can overshoot in either direction and the slump “is not particularly surprising.”

The broad U.S. stock market sell-off Wednesday took the S&P 500 to the lowest in three months, the Dow Jones Industrial Average plunged as much as 836 points and the Nasdaq 100 Index tumbled more than 4 percent for its worst day in seven years.

The sell-off came a day after the IMF said the world economy was plateauing and cut its growth forecast for the first time in more than two years, blaming escalating trade tensions and stresses in emerging markets.

Trump has slapped tariffs on $250 billion in Chinese goods this year, and Beijing has retaliated with levies of $110 billion of American products. The IMF projections don’t take into account Trump’s threat to expand the tariffs to effectively all of the more than $500 billion in goods the U.S. bought from China last year.

Preventing Overheating

Trump’s public criticism of the Fed is a sharp departure from his recent predecessors. Presidents for more than two decades had avoided public comments on the Fed’s interest-rate policies as a way of demonstrating respect for the institution’s independence.

Powell’s goal is to extend the second-longest U.S. economic expansion on record by moving interest rates up just quickly enough to prevent overheating, but not so rapidly that the central bank chokes off growth. Powell said last week that he expected to stick with the current path of gradual interest-rate hikes while monitoring risks in the economy.

Trump said Tuesday that the economy was enjoying “record-setting” numbers and “I don’t want to slow it down even a little bit, especially when we don’t have the problem of inflation.”

One reason why the Fed has been raising interest rates even with little sign of an inflation breakout is because the unemployment rate, which fell to 3.7 percent in September, is at a level that many officials expect will cause wage and price gains to accelerate over time.

‘Incredibly Strong’

White House Press Secretary Sarah Huckabee Sanders said in a statement following the close of markets that the U.S. economy was “incredibly strong” despite the sell-off.

“The fundamentals and future of the U.S. economy remain incredibly strong,” Sanders said in a statement. “President Trump’s economic policies are the reasons for these historic successes and they have created a solid base for continued growth.”